Nigeria downbeat on oil prices, adopts $42.50/b in 2017 budget

Nigeria, whose production is currently hovering close to 30-year lows, is downbeat on oil prices, with the government adopting a $42.50/b price for next year’s notional budget.

The government approved an oil price benchmark of $42.50/b at a production assumption of 2.2 million b/d for the purposes of revenue calculation in its 2017 budget, according to local media reports.

The budget contained in the medium term expenditure framework covering the period 2017-19, was approved by the cabinet at a meeting chaired by President Muhammadu Buhari on Wednesday, state television quoted budget minister Udo Udoma saying.

“Government is being very conservative in terms of the reference price of crude oil, even though we are expecting it to go higher than this, but we are keeping to an extremely conservative price scenario,” Udoma said.

This compares with its 2016 budget, which has a price benchmark of $38/b at a 2.2 million b/d output figure.

But the Nigerian government has struggled to implement the 2016 budget after oil output has slumped by more than 40% this year due to renewed militancy in the main oil producing Niger Delta region.

Nigeria, which until a few months ago was Africa’s largest oil producer, has seen its output fall to around 1.4-1.6 million b/d this month after climbing back up to 1.9 million b/d in end June from around 2.2 million b/d earlier in the year following a series of attacks on installations by the militants.

The government is retaining this year’s oil production estimate of 2.2 million b/d for 2017, according to the minister, on hopes that the security challenges that cut Nigeria’s output down to around 1.5 million b/d would “soon be resolved.”

PATH TO RECOVERY DIFFICULT

But Nigeria’s path to recovering oil output is fraught with challenges as instability in the Delta shows no signs of waning.

Earlier this week, the Nigerian military killed some rebels and arrested three in the creeks of the Delta, saying it would intensify raids on camps used by oil thieves and militants to breach pipelines.

This took place a few days after the Nigerian militant group Niger Delta Avengers, responsible for most of the bombings of oil facilities, said it would observe a ceasefire to allow for dialogue.

Even the country’s oil minister for state Emmanuel Kachikwu has adopted a cautious tone.

He recently said that such a “difficult” period was likely to last for a few months before a solution was found as talks with militants continued.

“I am hoping that over the [next] one to two months we will find some final solution that will bring production up, but once we have done that the reality is that we have lost quite a lot of months,” he said.

Four of Nigeria’s main export crude grades — Qua Iboe, Bonny Light, Brass River and Forcados — are currently on force majeure, with more than 700,000 b/d of production affected.

Worryingly, the export terminals of its two largest oil grades Qua Iboe and Forcados are still not operating due to militant attacks.